| Tue 23 Nov 2010, 7:05 | | AIP - Adcock - Abridged audited group results for the year ended 30 September |
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AIP
AIP
AIP - Adcock - Abridged audited group results for the year ended 30 September
2010
ADCOCK INGRAM HOLDINGS LIMITED
(Registration number 2007/016236/06)
(Incorporated in the Republic of South Africa)
Share code: AIP ISIN: ZAE000123436
("Adcock" or "the company" or "the group")
Abridged Audited Group Results
for the year ended 30 September 2010
Foreword
2010 has been a challenging yet satisfying year for Adcock Ingram. Despite a
tough economic environment, the group - which celebrated its 120th birthday this
year - has achieved pleasing results, reporting double-digit revenue growth,
improved normalised headline earnings per share and strong cash generation"
CEO, Jonathan Louw
Adcock Ingram provides an extensive portfolio of branded and generic medicines,
has a strong presence in over-the-counter (OTC) brands, is South Africa`s
largest supplier of hospital and critical-care products and supplies established
brand name consumables and equipment to medical, research and servicing
pathology laboratories.
Highlights
- Turnover up 11% to R4,4 billion
- Gross profit improved 15% to R2,3 billion
- Normalised* headline earnings up 15,5% to R900 million
(518,2 cents per share)
- Cash on hand R1,4 billion
- Final dividend up 27,5% to 102 cents per share
* Refer to note 7.
Consolidated statements of comprehensive income
for the years ended 30 September
2010 2009
R`000 % R`000
Note Audited change Audited
REVENUE 2 4 510 589 4 053 452
TURNOVER 2 4 440 654 10,9 4 005 153
Cost of sales (2 105 827) (1 968 238)
Gross profit 2 334 827 14,6 2 036 915
Selling and distribution (499 931) (421 969)
expenses
Marketing expenses (163 708) (130 026)
Research and development (65 287) (64 472)
expenses
Fixed and administrative (405 599) (375 619)
expenses
Operating profit 1 200 302 14,9 1 044 829
Finance income 59 288 38 680
Finance costs (40 473) (56 411)
Dividend income 2 10 647 9 619
Profit before taxation 1 229 764 18,6 1 036 717
and abnormal items
Abnormal item 3 (269 000) -
Profit before taxation 960 764 1 036 717
Taxation (317 536) (246 835)
Profit for the year 643 228 789 882
Other comprehensive (528) (12 910)
income
Exchange differences on (4 156) (5 045)
translation of foreign
operations
Movement in cash flow 3 628 (7 865)
hedge accounting reserve,
net of tax
Total comprehensive 642 700 776 972
income for the year, net
of tax
Profit attributable to:
Owners of the parent 631 459 782 396
Non-controlling interests 11 769 7 486
643 228 789 882
Total comprehensive
income attributable to:
Owners of the parent 630 931 769 486
Non-controlling interests 11 769 7 486
642 700 776 972
Basic earnings per 7 363,5 (19,5) 451,7
ordinary share (cents)
Diluted basic earnings 7 362,7 (19,4) 450,1
per ordinary share
(cents)
Headline earnings per 7 363,4 (19,2) 450,0
ordinary share (cents)
Diluted headline earnings 7 362,6 (19,1) 448,4
per ordinary share
(cents)
Normalised basic earnings 7 518,4 14,8 451,7
per ordinary share
(cents)
Normalised diluted basic 7 517,2 14,9 450,1
earnings per ordinary
share (cents)
Normalised headline 7 518,2 15,2 450,0
earnings per ordinary
share (cents)
Normalised diluted 7 517,1 14,9 448,4
headline earnings per
ordinary share (cents)
Consolidated group statement of changes in equity
Attributable to holders of the parent
Total
attri-
butable
Non- to
Issued distribu- ordinary
share Share Retained table share-
capital premium income reserves holders
R`000 R`000 R`000 R`000 R`000
As at 1 October 2008 17 306 1 193 662 340 117 77 306 1 628 391
Share issue 57 10 192 10 249
Share-based payment 13 098 13 098
expense
Total comprehensive 782 396 (12 910) 769 486
income
Profit for the 782 396 782 396
year
Other (12 910) (12 910)
comprehensive income
Dividends (120 571) (120 571)
Balance at 30 17 363 1 203 854 1 001 942 77 494 2 300 653
September 2009
Share issue 33 4 364 4 397
Movement in treasury (31) (17 928) (17 959)
shares
Share-based payment 272 095 272 095
expense
Acquisition of A
ordinary shares by
Blue Falcon Trading
69 (Pty) Limited
-non-controlling
interest
Acquisition through
business
combination: Ayrton
Drug Manufacturing
Limited
Subsequent (922) (922)
acquisition of non-
controlling
interests in Ayrton
Drug Manufacturing
Limited
Total comprehensive 631 459 (528) 630 931
income
Profit for the 631 459 631 459
year
Other (528) (528)
comprehensive income
Dividends (274 540) (274 540)
Balance at 30 17 365 1 190 290 1 357 939 349 061 2 914 655
September 2010
Non-
controll-
ing
interest Total
R`000 R`000
As at 1 October 2008 22 612 1 651 003
Share issue 10 249
Share-based payment 13 098
expense
Total comprehensive 7 486 776 972
income
Profit for the year 7 486 789 882
Other comprehensive (12 910)
income
Dividends (5 155) (125 726)
Balance at 30 September 24 943 2 325 596
2009
Share issue 4 397
Movement in treasury (17 959)
shares
Share-based payment 272 095
expense
Acquisition of A 93 750 93 750
ordinary shares by Blue
Falcon Trading 69 (Pty)
Limited -non-controlling
interest
Acquisition through 33 636 33 636
business combination:
Ayrton Drug
Manufacturing Limited
Subsequent acquisition (69) (991)
of non-controlling
interests in Ayrton Drug
Manufacturing Limited
Total comprehensive 11 769 642 700
income
Profit for the year 11 769 643 228
Other comprehensive (528)
income
Dividends (5 344) (279 884)
Balance at 30 September 158 685 3 073 340
2010
Consolidated statements of financial position
at 30 September
2010 2009
R`000 R`000
Audited Audited
ASSETS
Property, plant and equipment 857 471 599 746
Deferred tax 23 967 20 030
Investments 139 012 138 037
Investment in associate 12 200 12 200
Intangible assets 424 149 304 240
Non-current assets 1 456 799 1 074 253
Inventories 719 236 583 704
Trade and other receivables 1 150 393 1 036 605
Cash and cash equivalents 1 430 917 692 938
Current assets 3 300 546 2 313 247
Total assets 4 757 345 3 387 500
EQUITY AND LIABILITIES
Capital and reserves
Issued share capital 17 365 17 363
Share premium 1 190 290 1 203 854
Non-distributable reserves 349 061 77 494
Retained income 1 357 939 1 001 942
Total shareholders` funds 2 914 655 2 300 653
Non-controlling interests 158 685 24 943
Total equity 3 073 340 2 325 596
Long-term borrowings 453 830 117 076
Post-retirement medical liability 15 808 14 298
Deferred tax 23 961 6 683
Non-current liabilities 493 599 138 057
Bank overdraft - 221
Trade and other payables 957 922 630 743
Short-term borrowings 126 787 194 405
Provisions 84 464 68 752
Taxation payable 21 233 29 726
Current liabilities 1 190 406 923 847
Total equity and liabilities 4 757 345 3 387 500
Consolidated abridged statements of cash flows
for the years ended 30 September
2010 2009
R`000 R`000
Audited Audited
Cash flows from operating activities
Operating profit before working capital 1 321 990 1 176 280
changes
Working capital changes 115 364 (46 120)
Cash generated from operations 1 437 354 1 130 160
Finance income 59 288 38 680
Finance costs (40 473) (56 411)
Dividend income 10 647 9 619
Dividends paid (279 884) (125 726)
Taxation paid (324 832) (242 635
Net cash inflow from operating activities 862 100 753 687
Cash flows from investing activities
Increase in investments (975) -
Purchase of intangible assets - (11 025)
Cost of businesses acquired (139 502) (79 049)
Purchase of property, plant and equipment - (107 723) (169 439)
Expansion
Purchase of property, plant and equipment - (225 339) (59 170)
Replacement
Proceeds on disposal of property, plant and 2 819 4 163
equipment
Increase in Investment in Associate - (12 200)
Net cash outflow from investing activities (470 720) (326 720)
Cash flows from financing activities
Acquisition of non-controlling interest(*) (989) -
Proceeds from issue of share capital 4 398 10 249
Purchase of treasury shares (17 960) -
Subscription for "A" shares 93 750 -
Increase in/(repayment of) borrowings 269 033 (138 966)
Net cash inflow/(outflow) from financing 348 232 (128 717)
activities
Net increase in cash and cash equivalents 739 612 298 250
Net foreign exchange difference on cash and (1 412) (831)
cash equivalents
Cash and cash equivalents at beginning of year 692 717 395 298
Cash and cash equivalents at end of year 1 430 917 692 717
* Refer to note 5.3
Notes to the consolidated financial statements
1 BASIS OF PREPARATION
1.1 Introduction
The abridged audited results have been prepared in accordance with International
Financial Reporting Standards (IFRS), IAS 34 International Financial Reporting,
the South African Companies Act, the Listings Requirements of the JSE Limited as
well as the AC500 standards as issued by the Accounting Practices Board or it
successor. The condensed financial information has been audited by Ernst & Young
Inc. The unqualified opinion is available for inspection at the company`s
registered office.
1.2 Changes in accounting policies
The accounting policies and the methods of computation are in terms of IFRS and
consistent with those of the previous annual financial statements except for the
adoption of the following new and amended IFRS interpretations during the year
which had an impact on the business:
IFRS 3 Business Combinations
The group has adopted IFRS 3 Business Combinations, which introduces significant
changes in the accounting for business combinations occurring after 1 October
2009. Changes affect the valuation of non-controlling interest, the accounting
of transaction costs, the initial recognition and subsequent measurement of a
contingent consideration and business combinations achieved in stages. These
changes will impact the amount of goodwill recognised, the reported results in
the period that an acquisition occurs and future reported results.
IAS 23 Borrowing Costs
The group has adopted IAS 23 Borrowing Costs, which requires capitalisation of
borrowing costs when such costs are directly attributable to the acquisition,
construction or production of a qualifying asset. During the 12 months ended 30
September 2010, R9,3 million of borrowing costs have been capitalised on
qualifying assets.
2010 2009
R`000 R`000
Audited Audited
2 REVENUE
Revenue comprises
- Turnover 4 440 654 4 005 153
- Finance income 59 288 38 680
- Dividend income
- Black Managers Trust distribution 10 647 9 619
4 510 589 4 053 452
3 ABNORMAL ITEM
Share based payment expense 269 000 -
Abnormal items are items of income and expenditure which are not directly
attributable to normal operations or where their size or nature are such that
additional disclosure is considered appropriate. The abnormal item is the once-
off share-based payment charge relating to the shares issued to the Strategic
Partners in the Black Economic Empowerment (BEE) transaction.
2010 2009
R`000 R`000
Audited Audited
4 SEGMENTAL REPORTING
Turnover
Over the Counter 1 427 291 1 288 966
Prescription 1 666 373 1 466 736
Pharmaceuticals 3 093 664 2 755 702
Hospital Products 1 346 990 1 249 451
4 440 654 4 005 153
Operating profit
Over the Counter 407 082 402 448
Prescription 540 440 421 788
Pharmaceuticals 947 522 824 236
Hospital Products 252 780 220 593
1 200 302 1 044 829
Total assets
Pharmaceuticals 3 653 871 2 465 121
Hospital Products 1 103 474 922 379
4 757 345 3 387 500
Current liabilities (excluding bank
overdrafts)
Pharmaceuticals 880 026 726 831
Hospital Products 310 380 196 795
1 190 406 923 626
Capital expenditure1
Pharmaceuticals 192 796 156 605
Hospital Products 140 266 72 004
333 062 228 609
Dereciation and amortisation
Pharmaceuticals 51 410 37 367
Hospital Products 50 182 45 403
101 592 82 770
1 Capital expenditure consists of additions to property, plant and equipment,
but excludes additions to intangible assets.
2010
R`000
Audited
5 BUSINESS COMBINATIONS
5.1 Unique Formulations
On 17 November 2009, the group acquired 100% of
the assets of Unique Formulations, a vitamin and
mineral supplement company based in Cape Town, as
a going concern.
The fair value of the identifiable assets as at
the date of acquisition was:
Property, plant and equipment 196
Marketing-related intangible assets 24 204
Inventories 2 024
Accounts receivable 2 669
Fair value of net assets 29 093
Goodwill 8 448
Net purchase price 37 541
Of the total purchase price, a payment of R17,5
million has been deferred. The deferred portion
of the purchase price, which has been fully
provided for, is subject to the achievement of
certain performance criteria.
From the date of acquisition, the Unique business
contributed R23,1 million towards revenue. Should
the Unique business have been included from 1
October 2009, the contribution is estimated to
have been R24,8 million to revenue.
As the business was fully integrated into the OTC
segment, it is difficult to determine the exact
contribution towards operating profit.
The significant factors that contributed to the
recognition of goodwill include, but are not
limited to, the acquisition of trade listings of
an established product portfolio within the FMCG
channel.
A total of R0,3 million of costs relating to this
business combination were incurred and expensed
during the year.
5.2 Indigenous Systems (Pty) Limited
On 1 April 2010, The Scientific Group (Pty) Limited
acquired the net assets of Indigenous Systems (Pty)
Limited ("Indigenous"), an unlisted company in South
Africa, as a going concern.
Property, plant and equipment 1 925
Inventories 7 642
Accounts receivable 7 018
Accounts payable (3 585)
Net purchase price 13 000
Of the total purchase price, a payment of R3,2 million has
been deferred.The deferred portion of the purchase price,
which has been fully provided for, is subject to the
achievement of certain revenue targets.
From the date of acquisition, the Indigenous business
contributed R20,5 milliontowards revenue and R3,2 million
towards profit before income tax.
Should the Indigenous business have been included from 1
October 2009, the contribution is estimated to have been
R39 million to revenue and R5,9 million towards profit
before income tax.
5.3 Ayrton Drug Manufacturing Limited (Ayrton)
On 1 April 2010, Adcock Ingram International (Pty)
Limited, a wholly owned subsidiary of Adcock Ingram
Holdings Limited, acquired a 65,59% stake in a leading
listed Ghanaian pharmaceutical company, Ayrton Drug
Manufacturing Limited ("Ayrton") for R121 million.
5.3 Ayrton Drug Manufacturing Limited (Ayrton) (continued)
The fair value of the identifiable assets as at the date
of acquisition was:
Property, plant and equipment 20 355
Marketing-related intangible assets 28 295
Customer-related intangible assets 9 141
Other intangible assets 1 211
Cash and cash equivalents 14 417
Inventories 20 299
Accounts receivable 23 778
Accounts payable (10 028)
Receiver of Revenue (1 465)
Deferred tax (9 359)
Non-controlling interests (33 636)
Fair value of net assets 63 008
Cash and cash equivalents (14 417)
Goodwill 57 869
Net purchase price 106 460
Following the initial transaction, Adcock Ingram
International (Pty) Limited acquired an additional 0,59%
of the shares of Ayrton for R1 million, increasing its
ownership to 66,18% at 30 September 2010. Adcock has
placed an order on the Ghanaian stock exchangeto purchase
additional shares at GHCents (USD)0,16.
From the date of acquisition, the Ayrton business
contributed R43,5 million towards revenue and R9,7 million
towards profit before income tax.
Should the Ayrton business have been included from 1
October 2009, the contribution is estimated to have been
R85,7 million to revenue and R19,4 million towards profit
before income tax.
Goodwill represents the difference between the purchase
consideration and the fair value of the net assets
acquired as there are no further separately identifiable
intangible assets. The significant factors that
contributed to the recognition of goodwill include, but
are not limited to, the establishment of a presence within
the Western African markets, with local management and
distribution capabilities to drive the group`s product
sales into the various channels and customers that exist
within those markets.
A total of R1,9 million of costs relating to this business
combinationwere incurred and expensed during the year.
2010 2009
R`000 R`000
6 CAPITAL COMMITMENTS
Capital commitments 658 354 932 784
- contracted 503 362 143 693
- approved 154 992 789 091
7 EARNINGS PER SHARE
Earnings per share is derived by dividing earnings attributable to owners of
Adcock Ingram for the year by the weighted average number of shares in issue.
Diluted earnings per share is derived by dividing earnings attributable to
owners of Adcock Ingram for the year by the diluted weighted average number of
shares in issue. Diluted earnings per share reflect the potential dilution that
could occur if all of the group`s outstanding share options were exercised and
the effects of all dilutive potential shares resulting from the BEE transaction
are accounted for.
Number of shares
2010 2009
Reconciliation of diluted weighted
average number of shares:
Weighted average number of
ordinary shares in issue:
- Issued shares at the beginning 173 625 578 173 055 168
of the year
- Effect of ordinary shares 164 254 151 127
issued during the year
- Effect of ordinary treasury (77 367) -
shares acquired during the year
Weighted average number of 173 712 465 173 206 295
ordinary shares outstanding
Potential dilutive effect of 388 835 603 703
outstanding share options
Diluted weighted average number of 174 101 300 173 809 998
shares outstanding
Headline earnings per share is
derived by dividing earnings
attributable to owners of Adcock
Ingram for the year, after
appropriate adjustments are made
by the weighted average number of
shares in issue.
R`000 R`000
Headline earnings is determined as
follows:
Earnings attributable to owners 631 459 782 396
of Adcock Ingram
Adjusted for:
Profit on disposal of property, (221) (3 050)
plant and equipment
Headline earnings 631 238 779 346
NORMALISED EARNINGS PER SHARE
Normalised earnings per share and
normalised headline earnings per
share are derived by adjusting
earnings and headline earnings
disclosed above for the abnormal
item as detailed in note 3 to
derive a comparable number,
divided by the weighted average
number of shares in issue.
Normalised earnings per share
Earnings attributable to owners 631 459 782 396
of Adcock Ingram
Adjusted for:
Abnormal item 269 000 -
Normalised earnings before 900 459 782 396
abnormal item
Normalised headline earnings per
share
Headline earnings as reported 631 238 779 346
Adjusted for:
Abnormal item 269 000 -
Normalised headline earnings 900 238 779 346
before abnormal item
8 SUBSEQUENT EVENTS
8.1 Call option process by Baxter Healthcare SA (Baxter) in respect of Adcock
Ingram Critical Care (Pty) Limited (AICC)
For strategic reasons unrelated to the business of AICC, Baxter elected not to
proceed with the exercise of its Call Option over 50% plus 1 share of the AICC
business. The Option Agreement has been cancelled by mutual agreement of the
parties. The business of AICC will continue under the control of Adcock Ingram
and will continue to benefit from the existing 15-year licence, distribution and
raw materials supply agreements with Baxter.
8.2 The Scientific Group (Pty) Limited (TSG)
On 5 November 2010, the group entered into a formal sale agreement in respect of
its 74% holding in The Scientific Group (Pty) Limited (TSG). The sale agreement
is subject to various conditions including Competition Commission approval.
8.3 Roche Products (Pty) Limited (Roche)
On 18 November 2010, Adcock Ingram and Roche, the world`s largest biotechnology
company, established a 5-year strategic partnership whereby Adcock Ingram will
sell, promote and distribute two well established Roche products in South
Africa.
For and on behalf of the board
JJ Louw KDK Mokhele
Chief Executive Officer Chairman
22 November 2010
Highlights
- Turnover up 11% to R4,4 billion
- Gross profit improved 15% to R2,3 billion
- Normalised* headline earnings up 15,5% to R900 million
(518,2 cents per share)
- Cash on hand R1,4 billion
- Final dividend up 27,5% to 102 cents per share
* Refer to note 7.
FINANCIAL REVIEW
Headline earnings
Adcock Ingram is pleased to have achieved normalised headline earnings for the
year ended 30 September 2010 of R900,2 million (518,2 cents per share). This
represents a 15,5% increase over the comparable figure for 2009 of R779,3
million and translates into an improvement of 15,2% in normalised headline
earnings per share and 14,8% improvement in normalised earnings per share.
Turnover
The impact of our acquisitions of Unique Formulations, Ayrton Drug Manufacturing
Limited and Indigenous Systems, as well as the conclusion of co-promotion
agreements, supported turnover growth of almost 11% to R4,4 billion (2009: R4,0
billion). The above mentioned acquisitions and new multi-national partnerships
contributed R187,2 million to revenue.
Price decreases averaged 1% across the business. Government granted a 7,4%
Single Exit Price (SEP) increase in June 2010. In the Prescription segment the
SEP increase was implemented where market conditions allowed. The Pharmaceutical
division experienced price decreases in a significant portion of its generics
portfolio, the greatest impact being on Adco Simvastatin and Adco Efavirenz.
Continued volume growth in prescription generics, including anti-retrovirals
(ARVs) and the Hospital Products division was dampened by declining volumes in
the over-the-counter (OTC) segment as a result of continued consumer down-
trading.
Profits
Gross profit for the 12 months increased by 14,6% to R2,3 billion (2009: R2,0
billion) with overall margins improving from 50,9% to 52,6% (March 2010: 51,8%).
The gross margin percentages in Prescription and OTC improved to 58,2% (2009:
53,9%) and 58,5% (2009: 58,1%) respectively, while in the Hospital Products
division it reduced slightly to 39,3% (2009: 39,8%). Gross margins across all
businesses benefited from the strong Rand, which favourably affected imports of
raw materials and finished products, but this was partially offset by a higher
proportion of lower margin ARVs in the sales mix and continued pricing pressure
in the rest of the generic portfolio. In the Hospital Products division the
benefit of the strong Rand was outweighed by additional overheads and overtime
costs, consequent to the factory upgrade and a higher proportion of tender sales
compared to the prior year.
Factory upgrades at Clayville and Aeroton adversely affected production with
periods of significant downtime to ensure product quality and safety, and
overtime costs to make up production levels. In addition, implementation of new
processes and hiring of additional human resources to implement new regulatory
and quality standards has caused some on-cost to the business. The costs of
these disruptions totalled R49 million in the year under review.
Operating profit improved by 14,9% to R1,2 billion (2009: R1,0 billion) with the
percentage on sales improving from 26,1% to 27,0%. Operating expenses increased
by 14,4% to R1,1 billion (2009: R992 million), the primary drivers being
increased distribution and staff costs at the additional sortation facility in
Midrand, higher marketing spend and operating expenditure of R42,6 million in
newly acquired businesses which is not in the base 2009 figure. IFRS2 expenses
increased from R32,7 million in the comparable period to R45,8 million in the
current year. This excludes the IFRS2 expense of R269 million relating to the
issue of shares to the strategic partners in the BEE transaction which is
reflected as an abnormal item.
After net finance income and dividends received, profit before tax and abnormal
items grew 18,6% to R1,2 billion (2009: R1,0 billion). The effective tax rate
for the year was 33,1% (2009: 23,8%).
Cash flows and financial position
Cash generated from operations was a healthy R1,4 billion (2009: R1,1 billion).
This is reflective of sound working capital management in the period under
review, with overall levels of working capital reducing by R115 million.
Trade and other accounts receivable increased by just R113 million from
September 2009 with trade debtors` days at the end of the period at
approximately 58 days, an improvement over the 62 days reported in September
2009.
Inventory increased by R135 million in the twelve-month period, now representing
120 days of cost of sales compared with 105 days at September 2009. This
increase resulted from the large stock holding for the distribution and co-
promotion agreements entered into with MSD, Lilly and Novartis.
After net finance income, dividends and taxation, cash generated was R862
million (2009: R754 million). This improvement was achieved despite dividend
payments having increased by R154 million compared with the previous financial
year.
The group paid R140 million to acquire businesses in support of its growth
strategy and total capital expenditure across the various sites during the
twelve months was R333 million. Of the R800 million secured facilities for the
factory upgrades programme, R430 million was drawn down to fund the extensive
regulatory upgrade at the Aeroton operation and the construction of the high-
volume liquids facility at Clayville.
During the year, cash equivalents increased by R740 million, leaving the
business with a gross cash position of R1,4 billion (2009: R693 million) and net
cash of R850 million (2009: R381 million).
Dividends
In recognition of the strong cash position, we are pleased to announce a final
cash dividend of 102 cents per share (September 2009: 80 cents) representing an
increase of 27,5%. This results in the total dividend for the year being 2,5
times covered by normalised headline earnings.
BUSINESS OVERVIEW
Pharmaceutical Division
The Pharmaceutical Division has regained its position as number 1 measured
against 44 OTC/self medication companies in the Campbell Bellman confidence
survey, assessing level of performance on a number of defined attributes. In
addition, the company has maintained the number 1 confidence ranking with
General Practitioners amongst local and generic companies.
For the year under review, as measured by IMS, Adcock Ingram increased share in
the private market, in both volume and value terms. This was driven by a strong
volume performance by generics and continued growth from its bigger branded
prescription products, particularly Synap Forte.
Important strategic developments during the year were the conclusion of the
acquisition of Ayrton Drug Manufacturing Limited in Ghana and the collaboration
agreement with MSD - the 2nd largest global pharmaceutical company. Attractive
marketing synergies for both parties are anticipated from this agreement for the
distribution and co-promotion of several MSD products.
Upgrades to the Wadeville factory have been completed during the year while the
construction of the high-volume liquid plant in Clayville is on track to meet
the target completion date in 2012. Supply from the Midrand distribution centre
improved significantly with 96% of stock delivered on time to customers.
Sales during the period rose by 12,3% to R3,1 billion with anti-retrovirals
performing well via the South African government tender. Overall, the continued
financial pressure on consumers was evident in a shift to economy brands from
premium brands. Operating profits grew by 15,0% to R948 million assisted by the
strong Rand during the year which had a positive impact on input costs.
Adcock Ingram`s Kenyan operation is showing good growth, particularly from its
strong pharmaceutical brands. Dawanol sales are increasing in Kenya and the
product is now available in Uganda and other East African markets via local
distribution partners. Good growth is expected in the new financial year as new
Prescription and OTC products are registered and new distribution agreements
begin to bear fruit.
Hospital Products Division
This division is comprised of Adcock Ingram Critical Care and The Scientific
Group.
Adcock Ingram Critical Care (AICC)
The financial performance for the twelve months ended 30 September 2010 reflects
a pleasing 11% volume growth and significant public sector wins. Long term
partnerships were secured in the renal and blood arenas, with National Renal
Care and South African National Blood Services (SANBS). AICC has actively
endorsed various drives undertaken by the SANBS and has successfully secured a
three year agreement with that organisation effected from 1 April 2010.
The 9,5% increase in turnover was achieved despite the late start to the RT299
fluids public sector tender and registration delays for new plasma expanders and
the oncology range.
The period under review saw major public sector tender wins for AICC. AICC was
awarded in excess of 80% of the tender for intravenous fluids and over 95% of
the tender for renal products. These tenders are set to run for 24 months, and
commenced on 1 March 2010.
At year end, the R290 million factory upgrade was 65% complete and proceeding
according to schedule.
Shortly after the year end, the option agreement under which Baxter could
procure a controlling share in AICC was cancelled by mutual agreement. AICC will
continue to benefit from the existing 15-year licence, distribution and raw
materials supply agreements with Baxter.
The Scientific Group (TSG)
Turnover increased by 2,7% but improved margins and well controlled expenses
have resulted in strong operating profit growth over the comparative period. The
disappointing increase in revenue was a result of reduced sales in the
biosciences and export divisions, delayed funding for local research projects
and reduced donor funding into sub-Saharan Africa. The strengthening of the Rand
saw price decreases passed on to customers. On the positive side, medical
equipment sales into hospitals showed double digit growth. TSG`s market presence
improved with the successful acquisition and integration of Indigenous Systems
during the second half of the financial year, bringing to the business a
reputable product portfolio and a team with strong relationships within private
hospital groups.
Growing demand for improved and cost effective healthcare to large populations
within sub-Saharan Africa provides good growth opportunities. TSG has directly
employed its own staff in Zambia and Mozambique. In other territories, where the
business is still building critical mass, it will continue to utilise local
distributors.
REGULATORY ENVIRONMENT
The Department of Health`s SEP increase of 7,4% on scheduled pharmaceutical
products was implemented in June 2010.
The South African government reiterated its commitment to implementing National
Health Insurance (NHI), with National Treasury working on understanding the full
cost implications of such a scheme, which seeks to provide free or low cost
health cover for all South Africans. It is premature to speculate on the impact
of the proposed NHI on the business of Adcock Ingram. The group is monitoring
developments and will engage where necessary.
TRANSFORMATION
In support of the Broad-Based Black Economic Empowerment (BEE) Codes of Good
Practice, Adcock Ingram entered into a BEE equity transaction on 9 April 2010.
The total value of the transaction was R1,3 billion, based on the VWAP of R50,91
per ordinary share on the JSE at the close of trade on Thursday, 19 November
2009, the date when the Memorandum of Understanding was signed. The total
economic cost of implementing the transaction has been calculated at
approximately R370 million, with reference to the requirements of IFRS2 and
including transaction costs as well as the grant to the Mpho ea Bophelo Trust.
The cost of R269 million recognised in the current year is related to the
shareholding of the strategic partners in the transaction. No expense was
recognised for share allocations to employees as they will take place in the
next financial year.
PROSPECTS
With the mutually agreed cancellation of the Baxter option agreement, AICC will
be wholly integrated into the Adcock Ingram group to streamline the business,
improve efficiencies and reduce costs.
Adcock Ingram will continue to seek opportunities and new multinational
collaborations to service sub-Saharan Africa after the successful acquisition of
Ayrton in Ghana, which gives it a platform to grow sales in that country and in
other West African markets. Several new launches and line extensions are planned
for 2011.
Acquisition opportunities in the personal care and well-being categories have
been identified. Also, investment will continue in brands, people and customers
from our existing platform. However, the slow pace of the economic recovery is
likely to affect organic growth in this category.
Price increases in the SEP portion of the portfolio are unlikely to be granted
in 2011, and given low inflation, we also expect challenges in being allowed
price increases in the non-SEP product portfolio.
Adcock Ingram remains committed to supporting the South African government in
its rollout of ARVs and has tendered with a range of new generation ARV-
molecules and combination ARVs in the next government tender. Whilst volumes in
the new tender are higher than in previous years, tough competition on pricing
is expected to drive margins significantly lower.
The recent pipeline innovations obtained through partnerships with multi-
national partners including MSD, Celltrion, Lilly, Novartis, Roche and Norgine
are already bearing fruit and have greater revenue potential in the coming year.
Volume growth in AICC, driven in part by the national tender business, is set to
continue.
The manufacturing facility upgrades, which enabled international accreditation
of facilities, as well as improvements in the distribution network, are yielding
positive results in efficiencies and customer service levels and attracting
further multinational partnerships.
Adcock Ingram continues to seek opportunities to enter adjacent categories in
the South African market and to seek acquisitions in other emerging markets to
leverage the current Adcock Ingram pipeline.
For and on behalf of the board
KDK Mokhele JJ Louw
Chairman Chief Executive Officer
Declaration of ordinary dividend
Notice is hereby given that a final cash dividend of 102 cents per share has
been declared in respect of the year ended 30 September 2010.
The salient dates for the payment of the final dividend are detailed below:
Last date to trade cum dividend Friday, 7 January 2011
Shares trade ex dividend Monday, 10 January 2011
Record date Friday, 14 January 2011
Payment date Monday, 17 January 2011
Share certificates may not be dematerialised or rematerialised between Monday,
10 January 2011 and Friday, 14 January 2011, both dates inclusive.
By order of the board
22 November 2010
Midrand
Executive directors:
JJ Louw (Chief Executive Officer)
AG Hall (Chief Financial Officer)
Non-executive directors:
KDK Mokhele (Chairman)
EK Diack
T Lesoli
CD Raphiri
LE Schonknecht
RI Stewart
AM Thompson
Acting Company secretary:
NE Simelane
Registered office:
1 New Road, Midrand, 1682
Postal address:
Private Bag X69, Bryanston, 2021
Share registrars:
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
Postal address:
PO Box 61051, Marshalltown, 2107
Auditors:
Ernst & Young Inc.
Wanderers Office Park, 52 Corlett Drive, Illovo, 2196
Sponsor:
Deutsche Securities (SA) (Pty) Limited
3 Exchange Square, 87 Maude Street, Sandton, 2146
Bankers:
Nedbank Limited135 Rivonia Road, Sandown, Sandton, 2146
Rand Merchant Bank1 Merchant Place, cnr Fredman Drive and Rivonia Road, Sandton,
2196
Attorneys:
Read Hope Phillips
30 Melrose Boulevard, Melrose Arch, 2196
for more information please visit
www.adcock.com
Midrand
23 November 2010
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 23/11/2010 07:05:01 Produced by the JSE SENS Department.
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